The Finance Ghost: Banks, Premier, Fortress, Murray & Roberts — the investing week that was

11 Dec 2022

Red, blue or green? It hardly mattered in 2022. No matter your affiliation, it’s been a great time to own a little piece of a bank and the good times may not be over yet.

Credit demand is strong, margins are healthy, non-interest revenue is coming in nicely and losses are under control. This has led to expanding operating margins, which is lovely news for banks and shareholders.

Following close on the heels of positive updates from Standard Bank and Nedbank, Absa has released an update for the 10 months to October. Despite a dubious history of shareholder value creation, Absa has climbed by more than 24% this year and has outpaced its banking competitors in terms of share price growth.

Standard Bank and Nedbank are each up by nearly 20%, with FirstRand flat for the year and Capitec down 7% (the victim of a silly valuation).

With return on equity (ROE) at a particularly strong 17%, Absa is running well ahead of Nedbank and Standard Bank.

Premier breaks hearts

Just when investors got excited about the potential of a new listing on the JSE, the news broke that FMCG group Premier is no longer going to be separately listed. Brait, the investment holding company that owns Premier, has blamed the current situation in South African capital markets for the cancellation of the listing.

This is disappointing news for all who were hoping to invest in Premier. The company has established itself as a major player in the South African food industry, and many were looking forward to seeing it become a publicly traded company.

Brait will still unlock R3.5-billion through the sale of shares in Premier to underwriters Titan and RMB.

Despite this attempt to save the situation, Brait’s share price has had an awful few weeks, dropping by more than 20% since mid-November.

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Fortress survives a hard knock

Fortress has a dual-share class structure that worked well when market conditions were favourable.

However, the Covid-19 pandemic has been anything but enjoyable for property companies, and Fortress is now stuck with a structure that is no longer working within the context of REIT rules for distributions.

After an attempt to fix this issue failed when shareholders voted down the proposal, Fortress put itself in the firing line for an unfortunate place in history: the first property fund on the JSE to lose its REIT status.

There may be a happier ending to this story than many feared, with a shareholder meeting scheduled for 12 January. The goal is to change the rules for distributions temporarily and preserve REIT status accordingly.

To buy time, Fortress has lodged an objection to the JSE ruling and the exchange has agreed to wait for the outcome of the shareholder meeting before making a final decision.

Murray & Roberts chokes on Clough

Disaster has struck at Murray & Roberts, with the Clough deal falling through and the share price plummeting as a result.

This is a huge blow to the company, which was hoping to use the deal to solve a significant Aussie headache at a time when the entire balance sheet is under pressure. The market reacted to the news with a dismal 21% drop in the share price. Eina.

The buyer needed to put in an interim loan facility of A$30-million to avoid Clough being placed under voluntary administration. However, for whatever reason, the parties couldn’t agree on the terms of the loan and so the transaction collapsed.

The buyer has walked away and the Australian business has been placed into the equivalent of business rescue. DM168

After years in investment banking by The Finance Ghost, his mother’s dire predictions came true: he became a ghost.

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R25.

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Business Maverick

Premier breaks hearts

Fortress survives a hard knock

Murray & Roberts chokes on Clough